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The Reality of Energy Poverty in the European Context

Based on a report by the INSIGHT_E Consortium

www.insightenergy.org

Steve Pye

UCL Energy Institute, University College London

April 27th 2015

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Overview of presentation

1. What is the issue of energy poverty?

2. What do we know about the problem across the EU28?

3. How is the challenge being addressed at European level and by Member States?

• Defining the problem

• Policies and measures

4. How should policy be orientated, and what could be the role of the Commission?

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EU study provides an important basis for talk

• 6 month study covering all MS

• Broader focus to include vulnerable consumers

• Focused on policies and measures

• Orientated towards providing recommendation for COM

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1.What is the issue of energy poverty?

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What is energy poverty?

• Usually defined as a situation where individuals and / or households are not able to adequately heat their homes at affordable cost.

• 3 key drivers of energy poverty (in isolation or combination): low income, high energy prices, poor energy efficiency

• Issues of definition:

– What is meant by ‘adequacy’ and ‘affordability’?

– What fuels are included?

– What energy services are relevant – heating, cooling, mobility?

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Understanding energy poverty

ENERGY POVERTY

ENERGY AFFORDABILITY

ENERGY USE

PATTERNS

HOUSING PATTERNS

HIGH ENERGY BILLS

POOR ENERGY

EFFICIENCY

LOW INCOME

Energy consumption (type) Type of heating system (e.g. central heating)

Tenure system Housing characteristics

Income Energy prices Energy consumption (level)

EU-scale challenges: Sustainable energy

Economic structure / austerity

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Energy poverty as a distinctive problem

Explicit recognition, from three perspectives (Hills 2012) –

• Poverty, where low income households face disproportionately high costs to stay warm with limited scope for addressing the issue.

• Higher % of budget, poverty premium, poor efficiency buildings

• Health, as fuel poverty is thought to be a significant contributor not just to the excess winter deaths but to wider health concerns.

• Healy (2003) highlighted the role of inadequate warming and excess winter mortality (across EU15), particularly in Southern Europe and UK / Ireland (where thermal efficiency was also worst).

• CO2 mitigation, as fuel poverty remains a barrier to addressing reductions in households with a high potential.

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The linked issue of vulnerable consumers

• The functioning of energy markets can clearly have an impact on those in or at risks of energy poverty –

– through ensuring consumer protection and safeguards

– offering competitive tariffs (and access to them)

– assisting in the efficient use of energy.

• Vulnerable consumers are specific consumer groups who require additional protections and support (in markets).

• Critically, it is a linked yet distinctive issue (as shown below).

Vulnerable consumers

Markets-focus (protection & access)

Regulator / utility key actors Specific consumer groups

Curative in nature Shorter term outlook

Energy poverty

All energy use (affordability) Government / LA actors

Lower income households Preventative in nature Longer term outlook

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2. What do we know about the problem across the EU28?

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European estimates of energy poverty

• Our main understanding is informed by analysis using proxy indicators from EU-SILC (for example, EPEE 2009; Thomson and Snell 2013; Tirado Herrero and Bouzarovski 2014).

• Widely quoted estimate from EPEE - between 50 million and 125 million people in energy poverty. (Total population of EU28 is 505 million).

Share of population with arrears in accounts

AROPE & arrears on bills (EU-SILC) AROPE & unable to keep home warm (EU-SILC)

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Distinctive distribution of energy poverty across Member States

• Tirado Herrero and Bouzarovski (2014) suggest problem growing due to austerity increasing monetary deprivation and rising energy prices.

• Problem strongest in CEE, followed by Southern Europe but also wide variation within regions. Limited in Scandinavian countries.

Source: Tirado Herrero and Bouzarovski (2014)

More pervasive More focused

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Improving understanding of energy poverty in Europe

• Thomson and Snell (2013) distinguish between two indicator types – consensual and expenditure based. – ‘Consensual’ based: questionnaires to households about living conditions e.g.

ability to keep warm, problems with building condition.

– ‘Expenditure’ based: where expenditure on household energy exceeds a given threshold of income.

• Both have problems. There are concerns over population EU-SILC samples from being representative, how closely proxies represent actual problem etc.

• Expenditure methods require knowledge of housing condition across different income groups, to enable modelling of consumption; few Member States have these data.

• Stronger efforts needed on improving proxy indicators and helping Member States develop national expenditure metrics.

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Energy poverty under-researched, but visibility of and research into issues increasing Project Country/ Geographic focus Brief description

ACHIEVE (Action in low-income

Households to Improve energy

efficiency through Visits and

Energy diagnosis)

Bulgaria, France, Germany, Slovenia,

UK

Energy consultations, energy efficiency in appliances and behaviour, Information

and awareness; Training energy advisers, consultations in 1900 households with the

aim of reducing energy use and costs through energy efficiency, awareness raising

and training

BPIE (Building Performance

Institute of Europe) EU-28

Report (Alleviating fuel poverty in the EU) estimating the extent of fuel poverty in

the EU-28 with recommendations for alleviating energy poverty, especially

regarding energy efficiency in buildings

EC-LINC (Energy check in low-

income households)

Austria, Belgium, Germany, Hungary,

United Kingdom

A European project providing information and support to households in fuel

poverty and training long-term unemployed to become energy advisors to low-

income households.

ELIH-MED (Energy efficiency in

Low-income housing in the

Mediterranean

Italy, Spain, France, Malta, Greece,

Cyprus, Slovenia

This project brought together partners from 7 countries to improve energy

efficiency and promote energy savings in low income housing in the MED area.

Energy Cities Energy Cities has members active in

many Member States

A network of cities in Europe focussing on addressing various energy issues on the

local level; locally led energy transition

Energy City Budapest, Prague, Munich, Bologna,

Treviso, Ludwigsburg, Velenje

The objective is to contribute to a reduction in energy consumption and CO2

emissions on a local level across Central Europe with a focus on energy efficiency in

buildings

EPEE (European fuel Poverty

and Energy Efficiency) Belgium, France, Italy, Spain, UK

Retrofitting of old buildings for low-income tenants with a focus on identifying the

most effective measures for the national context and highlighting fuel poverty as a

priority in policy

EU Fuel Poverty Network -

Thomson and Snell Europe

Online information portal for researchers of EU fuel poverty to raise awareness and

increase dialogue about fuel poverty in the EU; Developing methodologies to assess

energy poverty

EVALUATE (Energy Vulnerability

and Urban Transitions)

Post-communist states of Eastern and

Central Europe

Study to investigate a shift in the paradigm to address the underlying causes of

domestic energy deprivation

FinSH (Financial and Support

Instruments for Fuel Poverty in

Social Housing)

France, Italy, Germany, UK, Poland Development of financial and support measures for social housing providers to

support social housing tenants

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3. How are the issues being addressed at EU / MS level? Defining the problem.

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Energy poverty and the EC: a concept recognised?

• The recent EC Energy Union communication said the following on Protecting vulnerable consumers:

• Gas and Electricity Directives under the Third Energy Package (2009) – energy poverty mentioned (although not defined), and very much linked to vulnerable consumer issues within regulated markets.

Energy poverty negatively affects living conditions and health. It has many causes, mostly resulting from a combination of low income and general poverty conditions, inefficient homes and a housing tenure system that fails to encourage energy efficiency. Energy poverty can only be tackled by a combination of measures, mainly in the social field and within the competence of authorities on the national, regional or local levels.

Member States shall take appropriate measures to protect final customers, and shall, in particular, ensure that there are adequate safeguards to protect vulnerable customers. In this context, each Member State shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of electricity to such customers in critical times. Member States shall ensure that rights and obligations linked to vulnerable customers are applied. In particular, they shall take measures to protect final customers in remote areas.

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Strong subsidiarity in this policy area for good reason

• Approaches to policy making.

• Energy supply and use.

• Housing condition, type and tenure.

• State of market liberalisation.

• Access to data.

Energy poverty recognised Strong market liberalisation Poor building efficiency Gas dominant central heating Moderate building data High owner occupier

Energy poverty not recognised Partial liberalisation Poor building efficiency Strong DH penetration Limited building data Large communal building stock

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Member States think differently about what is a ‘vulnerable consumer’

• Large variation in definitions used, reflecting that ‘vulnerability’ means different things. Reflects strong subsidiarity, recognising national circumstances.

• Does this variability matter? Yes, as these definitions should address vulnerability associated with socio-economic (income, age, health) and energy use (heating system, fuel, building fabric, payment methods) characteristics.

• Critical as targets and actions will be orientated based on the definition.

Definition type Member State

(MS)

No. of

MS in

category

Energy affordability (low income / high

expenditure)

FR2, GR, IE2, IT, SE

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Receipt of social welfare

BG, CY, DE, DK, FI1, PT, HU, LT, LU, MT4, PL, HR, SL3

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Disability / health CZ, NL, SK 3

Range of socio-economic groups

AT, BE, ES, RO, SL6, UK5

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Not available / Under discussion

EE, LV 2

Categorisation of Member States’ definitions of vulnerable consumers

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Broad approaches to issues of energy vulnerability

• Two broad approaches to issues at Governmental level – social versus energy policy focus.

• Subjective distinction based on who drives policy, how the problem has been defined, and typically the type of measures undertaken.

• Useful for understanding approaches taken, including for assessing different types of measures, and their transferability.

‘Policy focus’ on energy vulnerability across EU28

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Energy poverty is (explicitly) recognised to a limited extent by MS policy makers

• Four definitions in legislation (UK, Ireland, France, Slovakia) and a number under consideration (Italy, Austria, Malta, Cyprus).

• A number of Member States view this issue as an indicator of poverty – and do not distinguish the specific concept (e.g. Netherlands, Scandinavian countries).

• Lack of recognition does not mean inaction, just not targeted.

• In a number of MS the concept is not recognised at governmental level but many civic organisations in different Member States do recognise and campaign on the issue.

• Not an easy issue to address without good data on household income, and energy consumption.

• Key lessons for definitions – identify the problem, orientate effective action, allow for monitoring progress.

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UK experiences in defining fuel poverty

• UK has moved from 10% threshold (expenditure as share of income) to low income-high cost indicator.

Source: Preston et al. (2014)

Source: Hills (2012)

1. Choice of metric matters – but always trade-offs 2. Needs to lead to effective policy 3. Applicability data dependent

LIHC individuals

£414 / hhold (ave. FP gap)

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3. How are the issues being addressed across EU, at MS level? Policies and measures.

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Assessing Member State action regarding vulnerable consumers and energy poverty

• Measures include those targeted at vulnerable groups or those in or at risk of energy poverty but also those that might affect the situation by their nature.

• 280 measures reviewed across 4 categories, 40% of which are explicitly targeted on vulnerable consumers & energy poverty.

• Key focus of study on identifying effective measures, and their transferability.

• Provides a useful database, to add to previous research and work undertaken by Commission’s Vulnerable Consumer Working Group (under the Citizen’s Energy Forum).

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Categorising measures

Category of action Primary measures

Financial interventions

For 40% of Member States, social support is both a primary means of identifying vulnerable consumers and providing additional support.

Consumer

protection

While a diversity of action is observed, 40% of measures relate to disconnection measures. Disconnection is primary measure for 20% of Member States.

Energy efficiency 65% relate to building retrofit measures of different types – 30% of which are specifically targeted. Primary measure for 30% of Member States.

Info. provision & awareness raising

Stronger use of measures in Member States with strongly liberalised markets and where civic society movements evident.

* Primary measure - stated or implied means (via definition used or measures proposed) of tackling the issue.

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Financial intervention

• For many Member States, social support is both a primary means of identifying vulnerable consumers and providing additional support.

• Reflects ‘social-policy’ led approach.

• The combination of ST relief while addressing structural issues is critical. Strong demonstration of programmes to improve efficiency of social housing stock e.g. North West Europe.

• Additional targeting of energy-poor for such measures needs to be balanced against administrative complexity.

• Social tariffs also play an important role in Southern European MS, & BE/FR.

20% of all measures reviewed

Social support (housing, energy

costs)36%

Energy cost subsidies / payments

32%

Energy cost subsidies / payments (elderly)

7%

Social tariffs20%

Negotiated tariff w/

utility5%

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Consumer protection

• While a diversity of action is observed, 40% of measures relate to disconnection measures.

• Particularly strong role for regulators and utilities – although action also a function of market status.

• Also includes debt protection, helplines and targeted registration of vulnerable consumers.

27% of all measures reviewed

Consumer complaints

11%

Disconnections safeguards - general

14%

Disconnections safeguards - winter

10%

Disconnections safeguards - targeted

16%Utility code of

conduct8%Fines by regulators -

poor scheme implementation

Notification of price changes

Regulator ensuring fair tariffs

Additional advice / helpline

Debt protection (switching)

7%

Reporting on and register of VCs

11%

Gas grid extension scheme

Improved subsidy distribution system Provision of default

products / supplier12%

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Information & awareness

• Member States with the most liberalised markets tend to be those that have more measures relating to price comparison and transparent billing.

• Where there is a strong civic society movement in relation to energy or fuel poverty, the number of awareness campaigns is higher.

• Greater awareness of energy poverty and how to tackle it could come through the greater use of smart metering. 21% of all measures reviewed

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Energy efficiency measures critical to addressing energy poverty

65% relate to building retrofit measures of different types – 30% of which are specifically targeted.

Type of measure EE targeted measure

Low income households with employment benefits

Germany: Stromspar-Check (Energy-savings-check for low-income households) Belgium: Energy savers (Energiesnoeiers) project

Low income

households

Croatia: Energy efficiency and use of renewable energies for households UK: Energy Company Obligation (ECO) Ireland: Better Energy: Warmer Homes

Social housing focused

France: Habiter mieux programme (“Living better”) Netherlands: Energy Saving Covenant / Energiesprong

Communal buildings Hungary: SOLANOVA - renovation of large residential buildings and heat-supply-systems Lithuania: Multi-family building renovation via JESSICA funding mechanism

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Key insights relating to energy efficiency measures

Potential for stronger targeting of measures

• Data availability, and use of proxies • Trade-off within limited financial budgets

Useful examples of social housing focus – but much more challenging in private rental market

• Housing cost guarantee ensuring rents do not go up after improvements • Energy saving pay for investments (avoiding upfront costs) • Area-based approaches allow for economies of scale, comprehensive coverage

Delivery of retrofit offers opportunities for local employment

• Some concerns over conflicts of interest relate to delivery by energy companies

Incentives are critical for effective delivery, while funding of measures need to be carefully thought through

• More support needed for lower income households • Need to ensure payment through bills not regressive

Monitoring is key, to better understand effectiveness

• Limited evidence of ex-post analysis of measures

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Key points

1. Energy poverty is a growing problem, and needs greater recognition and action at EU/MS level.

2. Our understanding remains incomplete both at EU and MS level, limited by comprehensive datasets – although enough is known to act!

3. In recent years, the EC have increasingly recognised the issue, from a regulated markets perspective and issues around consumer vulnerability.

4. While subsidiarity is important, MS should consider energy poverty as linked but distinct from vulnerable consumers – with the need for different measures.

5. Many measures are being undertaken across MS, although the level of action differs as a function of problem recognition and energy market liberalisation.

6. Greater understanding of what works is needed, including transferability of good practice.

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4. How should policy be orientated, and what could be the role of the Commission?

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Potential areas of action at the European level

Defining the issue

Highlight distinctive yet linked issues of EP / VC

Defining what is meant by ‘vulnerability’

Defining the energy poverty challenge – but not necessarily the metric

Disseminating good practice measures

Develop database of VC / EP measures

Support for enhanced targeting of EE measures

Improving data Support for enhanced targeting of EE measures

Improving appraisal Develop appraisal guidance via impact assessment guidelines

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Defining the issue

i. Clear recognition that issues of vulnerable consumer protection and energy poverty are distinct.

ii. Provision of guidance on what constitutes vulnerable consumers (based on Member States’ experiences).

• Common approach to definition of who is a vulnerable consumers, to include

both socio-economic and energy vulnerability considerations; not prescriptive on action.

• Ensure NRAs report more comprehensively on vulnerable consumer definitions and measures.

iii. Explicitly define what energy poverty is and urge Member States to act

to alleviate it, but without prescribing the metric to be used.

• Engage with wider stakeholder groups to discuss different integrated approaches (social & energy policy) – and provide guidance.

• A strategy, with a long term vision, could usefully coalesce action and help more explicit allocation of funding in area.

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Disseminating good practice

iv. Develop database of measures used by different Member States, relating to vulnerable consumer protection and energy poverty.

• Build on work of VCWG, listed research initiatives, and this study.

v. Promote the targeting of energy efficiency measures to address energy poverty.

• Encourage MS to develop more targeted measures on low income

households. • Allocate higher share of EU funding, particularly focusing on regions with

greatest need.

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Developing data systems / measures appraisal

vi. Develop data reporting mechanisms that allow for improved indicators for measuring energy poverty.

• Facilitated by Energy Poverty Observatory to help support the development

of different indicators, and improve current proxy datasets. • Need for MS coordination on datasets and best practice.

vii. Stronger requirement in impact assessment guidelines to evaluate the impact of policies on vulnerable consumers, and the energy poor.

• Need to understand the both potential and actual impact of measures.

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Presentation references

EPEE (2009). Tackling Fuel Poverty in Europe: Recommendations Guide for Policy Makers. http://www.fuel-poverty.com/files/WP5_D15_EN.pdf Healy, J. D. (2003). Excess winter mortality in Europe: a cross country analysis identifying key risk factors. Journal of epidemiology and community health, 57(10), 784-789. Hills, J. (2012). Getting the measure of fuel poverty: Final Report of the Fuel Poverty Review. CASE report 72. ISSN 1465-3001. March 2012. Preston, I., White, V., Blacklaws, K., Hirsch, D. (2014). Fuel and poverty: A Rapid Evidence Assessment for the Joseph Rowntree Foundation. Centre for Sustainable Energy (CSE). June 2014. Tirado Herrero, S. and Bouzarovski, S. (2014). Energy transitions and regional inequalities in energy poverty trends: Exploring the EU energy divide. Thomson, H., and Snell, C. (2013). Quantifying the prevalence of fuel poverty across the European Union. Energy Policy 52: 563–572.

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Thank you for listening

Please get in contact:

s.pye@ucl.ac.uk

@st_pye

Learn more about INSIGHT_E:

www.insightenergy.org

@EuropeEnergy

Look out for published report on the INSIGHT_E website in late May / early June.